Cable TV firm agrees to settle

Struggling Adelphia to pay $715 million in fraud case

`Major' step in being acquired

Money to create fund to compensate investors

April 26, 2005|By BLOOMBERG NEWS

Adelphia Communications Corp. agreed yesterday to pay about $715 million to settle a federal fraud case in what the struggling cable television company called "a major milestone" toward being acquired by two competitors.

The money will be used to create a government-run fund to compensate those who claim they were defrauded by Adelphia under its founder, John Rigas, and his son Timothy, who were convicted in July of conspiracy and fraud. The agreement spares the Greenwood Village, Colo., company from criminal prosecution.

The settlement should help clear the way for Adelphia's acquisition by Comcast Corp. and Time Warner Inc., the two largest U.S. cable-television companies, said Sanford C. Bernstein & Co. analyst Craig Moffett. Comcast and Time Warner announced last week that they would buy Adelphia for $17.6 billion in cash and stock, the biggest transaction in the industry in two years.

The agreement "helps pave the way for a smoother transaction," Moffett said. "It removes some of the uncertainties around the liabilities" associated with Adelphia. Moffett rates Comcast shares "outperform."

U.S. Attorney General Alberto Gonzales said the $715 million represents the largest forfeiture of funds by individuals in any corporate fraud case. "Today is a day of restitution for the victims of corporate corruption," Gonzales said at a news conference in Washington.

The agreement "is the price we must pay to protect against the much larger potential harm" of leaving the case unresolved, Bill Schleyer, Adelphia's chairman and chief executive, said in a statement.

The two Rigases, along with some members of their family who weren't charged criminally, will forfeit ownership of more than 95 percent of the family's assets, including most of its cable television systems, real estate worth about $10 million and about $567 million in Adelphia securities.

Their bankruptcy lawyer, Lawrence McMichael, said the family "continues to believe it did nothing wrong. Nevertheless, the family felt the settlement was the right thing to do."

Adelphia, which already operates the Rigases' cable systems, will take ownership of about a dozen of them under today's agreement, leaving the family in control of just two small ones in Pennsylvania, the company said. Adelphia will be allowed to cancel the debt represented by the securities that have been held by the Rigas family, the Justice Department said.

The government will sell the real estate, with proceeds going into the compensation fund along with Adelphia's payment of $715 million in cash and stock.

The settlement is subject to approval by U.S. Judge Robert Gerber in New York, who is overseeing Adelphia's 2002 bankruptcy filing, and U.S. Judge Leonard B. Sand, who presided over the criminal trial of John and Timothy Rigas and will sentence them.

The SEC alleged in 2002 that the company, under the leadership of John Rigas, fraudulently concealed $2.3 billion in bank debts. John Rigas, 80, and Timothy, 48, were convicted in July of conspiracy and fraud for looting Adelphia and lying about its finances prior to the bankruptcy filing.

The decision not to prosecute Adelphia as a company "recognizes that the corporation was also a victim of its executives' crimes, that it cooperated fully in the investigation and that it took significant remedial measures," Gonzales said.

In addition to John and Timothy, five other members of the Rigas family joined in the forfeiture agreement.